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Ed's Blog

In the news this month are several successful efforts to improve credit report accuracy, compensate the victims of credit bureau malfeasance and also to bring some credit repair doctors to heel. Did it take a village? No, it took a combination of strong consumer laws, a strong CFPB, tough state attorneys general working on a bi-partisan basis and, finally, consumer attorneys engaged in private enforcement of the laws as another line of defense. For markets to work fairly, consumers need all these levels of protection.

In addition to demonstrating the importance of layered consumer protection and enforcement mechanisms, the cases also show that it is important to regulate the bureaus and hold them accountable, because despite their arrogant disregard for meeting the accuracy and reinvestigation standards of the law, they serve as gatekeepers to financial and employment opportunity. The Federal Trade Commission has concluded that up to 1 in 4 of all credit reports contain serious mistakes and 5% of all reports contain mistakes that could lead to paying more for or credit or to a denial of credit. Keeping an eye on the credit bureaus is important.

Here is a summary of some recent credit bureau news:

State Attorneys General Actions Force Bureaus To Drop Inaccurate Public Records: On July 1, thanks to the efforts of a bi-partisan, multi-state enforcement effort by 31 state Attorneys-General, 12 million consumers will see their credit scores increase by up to 20 points; 700,000 of them will see increases of as much as 40 points as certain negative public records, including tax liens and court judgements, drop off their credit reports. Why? Because the bureaus (Experian, Equifax and Transunion) have often failed to adequately match the often-scant court records with the full name and Social Security Number of the consumer to meet the Fair Credit Reporting Act’s “maximum possible accuracy” standard. While industry groups have whined that lenders may now receive less information than they need to make prudent decisions, they fail to acknowledge that many consumers have suffered lower credit scores due to routine inclusion of negative information about some other consumer on their reports. As another outcome of the 31-state enforcement action led by Ohio Attorney General Mike DeWine, as of September 1 only medical debt older than 6 months can be reported (much medical debt is wrongly blamed on the consumer, but is the result of slow-pay insurance companies or billing errors). Credit scoring companies are reducing their reliance on medical debt data points because they have finally realized that medical debt is not a good predictor of credit worthiness. Why? People have medical debt because they got sick, not because they were deadbeats on a credit card "shopping spree". Other highlights of the National Consumer Assistance Plan derived from the states’ enforcement action – from the perspective of the credit bureaus – are here. Make no mistake, although the bureaus strew words like “cooperatively” throughout that website, all the changes they are making are the result of government enforcement actions.

Class Action Lawsuit Results in Record Penalty Against Transunion: Last week, a jury found the Big 3 credit bureau Transunion guilty of violating the Fair Credit Reporting Act and harming a class of over 8,000 consumers. The jury imposed statutory damages and additional punitive damages, due to the willful nature of the violation, totaling $60 Million. Transunion mixed the names of ordinary consumers up with those of terrorists and drug traffickers with similar names on the U.S. Treasury Department’s very-scary-to-be-on Office of Foreign Assets Control (OFAC) database. It allegedly failed to adequately match birthdates or Social Security Numbers. And, it had been caught doing the same thing years before. In its failed defense, Transunion claimed the consumers did not suffer financial harm, so let it go. But privacy laws protect you from reputational harms as well; your good name has real value and loss of your good name has a real cost. The authoritative National Consumer Law Center also points out that the case points to the need to protect the use of class action remedies, which have long been under attack.

CFPB Nails Credit Repair Doctors: The credit bureaus not only make mistakes, they fail to conduct adequate reinvestigations of disputes or remove inaccurate information. Instead of complying with these FCRA responsibilities, the bureaus have developed their own lucrative direct-to-consumer channel for selling credit monitoring and identity-theft services to concerned consumers. But, the credit bureaus are so sloppy they’ve also fomented (spawned) an entire add-on predatory industry -- last-dollar credit repair doctors -- that takes advantage of the heightened consumer interest in higher credit scores that’s been driven by the bureaus’ scare-tactic marketing of their own absurdly-priced monitoring products. This week, the CFPB announced penalties of $2 million against 4 California-based credit repair doctors that “charged illegal fees and misled consumers about their ability to fix their credit.” These “doctors” falsely claimed they could “repair” your credit. Of course, no one can remove accurate, negative information.

The CFPB has, virtually from its standup in 2011, taken a very close look at the so-called Big Three credit bureaus — Experian, Trans Union and Equifax, because they serve as unappointed gatekeepers to financial and employment opportunity and because the credit reporting marketplace is a “dead-end market.”

As CFPB Director Richard Cordray often explains, the credit bureaus (and debt collectors, too) are dead-end markets worthy of greater scrutiny and oversight. Remember, you can choose your bank and you can vote with your feet if you don’t like it. You’re stuck, however, with the dead-end credit bureaus. Unfortunately, their mistakes matter to your financial and employment opportunity. Here’s an excellent speech, where the director first explains the run-up to and need for the CFPB as well as its focus on what he calls the “four Ds”: Debt Traps, Discrimination, Deception, and Dead-End markets.

In 2012, the CFPB issued a major report on the “dimensions” of the consumer reporting system. A finding (see footnote 104) of that report, as a senior credit bureau lobbyist was forced to admit at a subsequent 2013 Senate hearing, was instrumental in forcing the Big 3 to finally include information submitted by the consumer in their re-investigations.

The CFPB’s Monthly Complaint Database “snapshots” regularly list the credit bureaus as 1, 2 and 3 on the complaint parade.

Earlier this year, the CFPB issued a special edition of its “supervisory highlights” outlining all the problems examiners have identified with credit bureaus. The report is only possible because the CFPB has examination authority that Congress never gave the FTC. The report lists a platform of CFPB-demanded changes to the credit bureaus’ “sub-par” procedures to both clean up their reporting systems and force them to improve their complaint-handling.

Chi Chi Wu of the National Consumer Law Center released an analysis of the findings of that CFPB report: “The report confirms the long-standing and extensive criticisms that attorneys and advocates have had of the Big Three CRCs [Consumer Reporting Companies] over the decades. As CFPB Director Richard Cordray characterized it, "Standards on the accuracy of information in consumer credit files were distinctly sub-par."

Credit reporting is a unique example of a financial sector where special interests have been unable to completely preempt state authority or hamstring private consumer enforcement or disarm the federal cop, although they are certainly trying. For now, that means we have an environment where consumer attorneys, state and federal enforcers and strong federal laws all work together to make an otherwise dead-end market work.

Do consumers really deserve a world where they have no recourse when gatekeepers mix them up with terrorists? Where gatekeepers can make, then ignore, mistakes that lower their chances of getting credit or a job? Where bottom-feeder credit repair doctors can seek to take their last dollar because that gatekeeper didn’t do its job? Of course not.

The idea of the CFPB needs no defense, only more defenders. So do the concepts of protecting strong consumer laws, strong state enforcement and, finally, the rights of consumers and their consumer attorneys to take on corporate wrongdoers either individually or banded together in class actions, without unfair restrictions that tilt the playing field in favor of the wrongdoer.